My Turnaround Journey - A Critical Point in Time
It is often said, that the Chinese word for crisis is comprised of two written characters meaning "danger" and "opportunity". This is not exactly true ...
The first character does indeed mean danger. However, the second character is accurately translated as a “crucial point (when something begins or changes).” Thus, "a dangerous moment in time when things start to go awry".
And so it was with my own turnaround experience. At a critical point in time I learned the true nature of turnaround; poor marketing planning and/or execution is the root cause of most business failures.
In today's environment, growth is not a forgone conclusion and most companies will face their own critical point in time when the need for a fresh approach to marketing is warranted.
"The IRS has informed us that they are seizing our assets"
Those were the last words that were spoken during my briefing from a business owner that hired me to turnaround his company. I had just left The Coca-Cola Company and was positive that my experience in managing the marketing operations for a multi-million dollar division would serve me well in this highly entrepreneurial environment.
I was the third person the business owner had hired to do the same job. The first two had failed in their quest, but not before extensive cost-cutting. What was left was a shell of a company that was unable to generate enough cash to even meet payroll. So much for the "textbook" approach of conserving cashflow to save the company. The old saying is true - it takes money to make money.
As background, the owner had created a unique purified water system for home and commercial use. Sixty gallon tanks were housed in attractive cabinets with a built-in water faucet, eliminating the need for traditional 5 gallon water bottles. However, the savings that were realized from this innovative delivery system, was offset by the higher cost of the system itself.
In the face of a multitude of problems, the highest priority was to recover the assets. This was accomplished by reincorporating the business, which allowed us to sell the assets to a third party and then lease them back (using the proceeds of the sale to retire the IRS debt). Now we had regained the use of our assets, but still suffered from insufficient cashflow.
What followed was an exhaustive review of each customer. We learned that the average consumption of water per cabinet could not support the investment (return on assets). Since we couldn't raise the price of water (due to the competitive market), we had to completely restructure our customer base. Simply put; we had to focus on large customers ... easier said than done.
Previous management had laid off all sales personnel as a cost-cutting measure. However, we were able to raise some cash by consolidating vendors and put the money to work by hiring salesmen. We targeted more sophisticated buyers and after extensive training, began to sell high volume accounts. In so doing, our average volume per asset increased 10 fold.
The Lesson ...
Following my experience I began to study the turnaround industry in greater detail, and discovered that - 1) the result of most turnaround efforts is liquidation; simply put, the companies did not survive, 2) the root cause of almost all business failures could be traced to poor marketing assumptions and/or execution.
Indeed, all companies face headwinds of change with respect to their underlying marketing environment. In that sense we are all turnaround candidates.